Single-asset deals dominate GP-led activity in 2021 – Lazard

Single-asset processes became by far the most popular type of GP-led deal in 2021 though a first-quarter lull is likely, according to Lazard.

Continuation fund deals centred on one asset accounted for 52 percent of sponsor-led deals by volume in 2021, compared with 38 percent in 2020, according to the secondaries advisor’s annual market survey.

Multi-asset continuation fund deals accounted for 31 percent in 2021, down from 34 percent the year before. The remaining 17 percent was accounted for by tender offers, strip sales, preferred equity deals and other unclassified deal types.

Seventeen percent of the capital invested in single assets deals was in ticket sizes up to $50 million, while 9 percent was in ticket sizes greater than $401 million, the second-most popular size range.

High-profile deals, increased education among M&A advisory professionals and more available pools of dedicated capital were among the reasons for the spike in single-asset activity, Lazard said.

It expects demand to “taper” in the first quarter as buyers who have reached their concentration limits seek out more diversified portfolios. Sixty-three percent of secondaries buyers surveyed deployed more than 40 percent of their dry powder in 2021.

“Most major secondary firms are currently raising new funds,” global head of private capital advisory Holcombe Green told Secondaries Investor. “As a result, relatively more capital will be available as the year progresses and firms raise their new funds. The first quarter of the year may be more competitive for capital than 2021 as these funds get raised.”

The average ticket size for a lead investor in a sponsor-led deal was more than $100 million in 2021, with 5 percent of respondents reporting an average ticket size of at least $300 million. Seventy-one percent of syndicate members committed less than $50 million on average to GP-led deals.

Fewer than 20 percent of GP-led deals by volume featured a stapled commitment in 2021 due to the low proportion of sponsors using the market to achieve primary fundraising goals, Lazard noted.

“The pipeline of 2022 activity does not yet suggest this will change significantly in the very near term,” said Green. “That said, as fund raising markets get more competitive over 2022 and into 2023, the secondary market can be a source of incremental capital for sponsors and it would not be surprising to see more firms try to take advantage of this.”

Lazard put overall transaction volumes at $126 billion in 2021, split almost equally between LP-led and GP-led deals. It predicts that the 50 largest private equity sponsors will have all used the secondaries market in the next two years. That figure is 56 percent today.